Understanding the Employee Retention Credit: Where Does the ERC Money Come From?

The Employee Retention Credit (ERC) is a tax credit available to small business owners, LLCs, S-Corps, or 1099 employees. It's not a loan, so it doesn't have to be repaid. The Internal Revenue Service (IRS) has not denied any of those parties receiving the tax credit, but in most cases, customers have not yet received the funds. The purpose of the ERC is to encourage employers to keep employees on the payroll even if they weren't working during the period covered due to the effects of the coronavirus outbreak.

To date, we have worked with more than 100 banks and other employers in their efforts to obtain an ERC. The amended and revised Infrastructure Bill has updated the ERC and changed many rules. Companies can now apply for both the Paycheck Protection Program (PPP) and the ERC, providing them with much-needed help. If your company qualifies, you can apply for both the FFCRA credit and the ERC credit for your retirement plans.

If an ordinary employee qualifies for the ERC, they are entitled to do so regardless of whether they declare and pay their federal payroll taxes through a third-party payer. However, you cannot claim the ERC with the same salaries that you used to qualify for PPP debt forgiveness. Employers cannot deduct the salaries used in the ERC assessment from taxable income up to the ERC amount during the calendar quarter. Section 2301 (e) of the CARES Act says that restrictions similar to those in section 280C of the Code apply when applying for the ERC.

If they delayed payroll taxes before receiving the ERC in the fourth quarter, they had to determine any underpaid tax amounts and prepare to resolve those problems.The actual number of companies and organizations that have applied for the ERC has been significantly lower than expected. Many taxpayers spent most of last year determining their ERC eligibility and submitting refund requests. Unfortunately, due to staff shortages (such as those experienced by the SBA as a result of the Paycheck Protection Program), employers will not receive their funds until long after the crisis has abated.